Tata Sons moves to oust Mistry from all group companies’ boards

MUMBAI: The bitter boardroom war in the Tata Group escalated further as Tata Sons, which holds 73.3% in Tata Consultancy Services (TCS), removed Cyrus Mistry as chairman of the infotech giant. It also called for extraordinary general meetings (EGMs) of shareholders to evict Mistry from the boards of TCS and Indian Hotels Company Ltd, which runs the Taj chain.

However, Cyrus Mistry received a shot in the arm after the independent directors of Tata Chemicals backed him as the company’s chairman on Thursday. Tata Chemicals is the second company after Indian Hotels where independent directors have supported Mistry.
On Wednesday night, Tata Sons nominated Ishaat Hussain as chairman of TCS, the crown jewel of the country’s largest private conglomerate.

This came even as Bombay House, headquarters of the $108 billion group, sought clearance from shareholders to axe Mistry from the board of all seven listed companies on which he serves. Notices calling for EGMs in five other companies – Tata Motors, Tata Steel, Tata Global Beverages, Tata Chemicals and Tata Power – will be issued in the coming days.

Any shareholder with at least 1% of total voting rights in a company can call an EGM to remove a director, but a majority of shareholders have to support the proposal. Mistry’s sacking as TCS chairman will go through even if public shareholders vote against it, since Tata Sons holds an overwhelming majority in the company. But it may not prove as easy in the other six listed companies, where the promoters’ holding varies between 30 and 39%. The vote of institutional investors will be decisive in these companies.

Cyrus Mistry has refused to quit the boards of operating companies after he was sacked as chairman of Tata Sons on October 24, staying defiant with the backing of some independent directors. Since Mistry has the support of a majority of directors on the IHCL board, replacing him as chairman will be difficult for Tata Sons. So, the Tatas, who hold 38.7% in IHCL, moved a resolution for an EGM to remove him as director. To remain chairman, the person has to be a director on the company’s board. Mistry, in turn, will get a chance to defend himself at the EGM.

“The process of removal of directors is not identical to that of appointment. Removal requires that the notice to shareholders, who would vote on the removal, contain a virtual showcause notice on the reasons why a removal is proposed,” said Sandeep Parekh, founder, Finsec Law Advisor.

“The director sought to be removed has a right to defend himself. However, after this process, mathematics comes into play and a simple majority of those present and voting can remove the director,” Parekh said.

Mistry’s axing at TCS went through smoothly as Article 90 of its Articles of Association enables its largest shareholder to nominate the chairman. This gives Tata Sons absolute power and so it doesn’t require board approval. This provision in the AoA was effected through an amendment by a special resolution passed on may 5, 2004.

Tata Sons can make a similar move at Tata Power too. However, it won’t be able to replicate this at other companies like Tata Chemicals, Tata Steel and Tata Motors, along with IHCL. At these companies, the board elects and replaces the chairman with the support of independent directors.

Also, Tata Sons had a representative in Hussain in TCS, and so he could be made the chairman. However, there is no direct representative of Tata Sons in Tata Power.

Soon after TCS intimated the bourses, the Mistry camp said, “the hasty actions appear to have been done in the night” of November 9. It described the development as an “angry strategy of Ratan Tata camp” which had “little regard to the due process of law”. Given the intricacies surrounding the Tata Group, there’s a risk of the operational companies becoming dysfunctional, a report by IiAS, an institutional advisory firm said.

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